Yeah, this is happening. Honestly, I really cannot imagine this taking off, in part because of the HW manufacturers that are gearing up to make their own 'Xbox' devices.
What is helping push this initiative is simply how 3rd party relations have devolved this year with MS and other publishers. Team Xbox is anticipating far less support than what they get now in the coming years, which they largely pay for anyway, so this is merely a move to enable some form of HW expansion to hopefully shore up support and to stop the current userbase bleed they are dealing with. On the one hand, its a model of approach that has largely worked in the mobile device sector; Google pushing AndroidOS as the largest mobile OS for smart phones being a fantastic allegory.
So, the issue is the trade on performance quality right, and this has always been one of the stronger things a console or platform has in its favor over PC - consistent, uniform performance, guaranteed or vetted performance standards. It isn't a necessarily impossible problem to solve, but this approach invites the massive hardware overhead that plagues Windows OS PC gaming. A service like GamePass, at least, does help make this upcoming launch of PC handhelds more attractive though, simply cause its asking consumers less to invest to enter the ecosystem, so it does have that going for it, but given what the selling power of Game Pass is now for dedicated Xbox HW, not really sure this will help all that much.
The irony is, if this mobile Xbox OS does not allow you to install any 3rd party stores like Steam, then the biggest selling point of these PC handheld hardware - your ability to access your Steam library - goes out the window. The biggest success stories in this HW sector is nearly exclusively the Steam Deck, but the other devices have boasted their ability to let you access Steam through their current Windows OS versions. If an Xbox OS only allows Xbox titles & Game Pass to run on them, then I fear this will have even less appeal than I thought.